Revenue Declines, Not Medicaid Expansions, to Blame for State Budget Shortfalls, Report Suggests

Recession-related state budget shortfalls are the result of revenue decline, not greater spending on Medicaid, a new report suggests.

Recent reports, such as the one released earlier this week by the Kaiser Commission on Medicaid and the Uninsured, indicate that high demand for the safety net program increased during the recession. Governors have repeatedly asked for more help in managing Medicaid spending, which pays for the bulk of nursing home care.

States face the possibility that the U.S. Supreme Court will uphold the expansion of the Medicaid rolls in 2014.

But the report released Wednesday by the Georgetown University Center for Children and Families found that overall state spending on Medicaid in 2008 and 2009 actually dropped due to an influx of federal funds. A lack of revenue to state general funds, which come via personal income taxes, state sales tax and corporate income taxes, were the primary drivers of budget shortfalls, the report says.

“State budgets have faced shortfalls in large part due to the decline in revenues and that spending growth in Medicaid has largely been offset by federal funds,” the report says, and urged states to promote increased revenue.

The Center for Children & Families (CCF), part of the Health Policy Institute at the McCourt School of Public Policy at Georgetown University, is an independent, nonpartisan policy and research center with a mission to expand and improve high-quality, affordable health coverage. Founded in 2005, CCF is devoted to improving the health of America’s children and families, particularly those with low and moderate incomes. Contact Us